Berenberg lowers target price on Bakkavor

Analysts at Berenberg lowered their target price on food manufacturing group Bakkavor from 110.0p to 95.0p on Tuesday, citing lower earnings trajectory.

Berenberg stated that despite "significant headwinds", Bakkavor had reported a "resilient" set of interim results last week, with volumes remaining "steady", pricing gains helping offset mounting inflation, and internal costs remaining broadly flat.

However, the German bank stated that pressures were "not easing" and that Bakkavor was already utilising many of its "self-help levers".

"We think that profit growth will be limited in the near term; therefore, we think that there is limited scope for equity outperformance until pressures subside," said the analysts, who reiterated their 'hold' rating on the stock.

With that in mind, Berenberg added that while the UK appears to be challenging, it continues to be encouraged by Bakkavor's US performance, which recorded 35% like-for-like revenue growth in the first half - driven by volume growth in fresh meals, which continues to deliver an improving rate of sale.

"Meanwhile, margins in the US were hamstrung by cost inflation (EBITDA down 9% on reported revenue that was up 43%) – Bakkavor has negotiated improved pricing, which will help the segment deliver an improved profit performance in H2. Furthermore, scope for medium-term distribution gains are large, albeit constrained in the near term by capacity challenges," Berenberg added.

Reporting by Iain Gilbert at Sharecast.com